Rachel Reeves has been warned that making changes in the Budget to the amount of cash people can withdraw tax-free from their pensions is a “high-risk strategy” which would create a “political storm”.
The Chancellor is looking at a range of tax rises to try to fill and £20bn-£40bn hole in her budget without breaking her manifesto pledge not to raise income tax, VAT or employee national insurance contributions.
A significant source of funding would be to reduce the amount pension savers can take from their pot tax-free each year.
A new report from the Institute for Fiscal Studies has recommended that the Chancellor should look at reforming this tax-free element which retirees can take from their pension income.
In its report, the IFS said that the tax-free 25 per cent offered on all pension withdrawals up to a cap of £268,275 was “ripe for reform”.
